Never miss a post

Personal Loan

When Can You Claim Tax Benefits On Personal Loans?

Feb 28, 2017

Tax benefits for your personal loans. Sounds surprising? It is.

Not many people know that they can get tax benefits on personal loans. Yes. You heard it right. But whether you get tax benefits or not will depend on the final use of the money taken as personal loan.

Let's see how it can be done.

When you take a personal loan for the purpose of construction, repair or purchase of your property, you can claim certain personal loan tax benefits.

As per the current Income Tax laws, the government allows tax deductions on loans taken to buy residential properties or to repair it. So if you take a personal loan for repair or renovation of your house or property, these can be considered as legal expenses for claiming deduction. You can also use the money towards down payment of your property and still claim tax exemption.

But not all of your loan repayments will be considered for exemption. Generally, you cannot get deduction for the principal amount of the loan. Only the interest paid on loan can be utilized for tax deduction. Having said that, it's worth mentioning that you need to provide adequate proofs to tax authorities about having used the money for purpose of purchase/repair of your property.

Therefore, you need to preserve all documentary proofs that will help you establish the end use of the money taken as personal loan. In case you have used the amount for repair works, make sure to preserve the bills for materials and labour, as they will be needed at the time of making claims.

That was about using your personal loan for housing purposes. But there is no denying the fact that personal loans have high interest rates and are much costlier than home loans. But since processing of personal loan applications is very quick these days, you might be tempted to take personal loan and be done with it. But experts suggest that it's always best to take a home or property loan for buying or repairing of property. So irrespective of the potential tax benefits, choose personal loan only as the last resort for your property needs.